K 29 Bad 67051 Marketing Management Lecture 6 Distribution Strategy

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K 29Bad 67051Marketing ManagementLecture
6Distribution Strategy

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Channel of Distribution

• DEFINITION
• The complete sequence of marketing organizations
  involved in bringing a product from the producer
  to the customer
• -- a system of interdependency within a set of
  organizations
• --a system that facilitates the exchange process.

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What a Channel Involves

• A. Conventional channel
• loosely aligned, autonomous organizations that
  carry out a trade relationship
• B. Vertical marketing systems
• tightly organized systems coordinated by
  ownership of one member, legal agreements, or the
  power of one member

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What a Channel Involves

• C. Facilitators
• provide limited services to channel members
• D. Intermediaries (or middlemen)
• specialize in distribution
• Merchant Intermediaries take title to the product
• Agent Intermediaries do not take title to the
  product

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III. Functions of Intermediaries

• A. Physical Distribution Functions
• Bulk
• Assortment
• Transportation
• Storage
• FEDEX Supply Chain Services (previously Caliber
  Logistics)
• http//www.fedex.com/us/supplychain/services/index
  .html?link4 go!

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III. Functions of Intermediaries

• B. Communication
• C. Facilitating Functions
• Service
• Credit
• Risk

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Cutting the Middleman

• Does not eliminate the costs associated with the
  functions performed by that intermediary

Manufacturer
Still must break bulk, arrange assortment, store
and ship or these functions to the retailer
Retailer
Ultimate Consumer
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Functions of Intermediaries

• A.. Physical Distribution Functions
• 1. Breaking Bulk
• Buy in large quantities, sell in small quantities

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Breaking Bulk
PRODUCER
INTERMEDIARY
Buyer A
Buyer B
Buyer C
Buyer D
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Functions of Intermediaries

• 2. Accumulating Bulk
• Buy units from many small producers, offer larger
  amounts to buyers

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Accumulating Bulk
INTERMEDIARY (assembler)
BUYER
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Functions of Intermediaries

• 3. Creating Assortments
• Resolve the discrepancy factories produce large
  quantities of a single product, buyers want small
  quantities of a variety of products

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Functions of Intermediaries

• 4. Reducing Transactions
• Intermediaries as buying agents for their
  customers and selling agents for producers,
  simplify the process

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Reducing Transactions
General Foods
Smuckers
Best Foods
Pet Foods
Safeway
Acme
Giant Eagle
Ralphs
WHOLESALER
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Physical Distribution Functions

• 5. Transportation and Storage
• physical movement of merchandise from points of
  production to points of consumption, including
  storage

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Transportation and Storage
Manufacturer produces Swimsuits in September
Storage
Transport
Transport
Retailer accepts delivery in January
Retail Stores
Storage fills until January
Transport
Customer Buys
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Communication

• Linkage between manufacturer and retailer, or the
  wholesaler and retailer to
• 1. transfer ownership - consummate an exchange
  of title
• 2. perform promotion - sales force, advertising,
  sales promotion
• 3. judge quality of alternative manufacturers

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Communication

• 4. inform buyers how products are to be sold,
  used, repaired
• 5. conduits of information with many different
  suppliers
• 6. collect information from retailers and
  consumers

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Facilitation

• 1. all the "extra" services
• --post-sale repair service
• --management services (accounting systems,
  inventory planning, store site selection, layout,
  management training)
• --credit
• --risk-taking

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Vertical Marketing Systems
Characteristics
Type of channel

• A. Corporate
• Total Ownrship
• Sherwin-Williams (owns production retail
  facilities) go!
• Florsheim GO!
• B. Administered
• Strong leadership by producer, wholesaler, or
  retailer
• General Electric

Traditional
Vertical marketing systems
Administered
Contractual
Corporate
Little or none
Some to good
Fairly good to good
Complete
Amount of cooperation
None
Economic power and leadership
Contracts
One company ownership
Control maintained by
Typical Independents
McDonalds
Florsheim
General Electric
Examples
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Vertical Marketing Systems

• A. Corporate
• Total Ownership
• Sherwin-Williams (owns production retail
  facilities) go!
• Florsheim GO!
• B. Administered
• Strong leadership by producer, wholesaler, or
  retailer
• General Electric
• Wal-Mart suppliers

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Vertical Marketing Systems

• C. Contractual
• Legal relationships assign channel leadership
• McDonalds GO!
• D. Retailer Coorperative
• Combine to control wholesaling needs
• Certified Grocers GO!

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Vertical Marketing Systems

• E. Voluntary Chain
• Wholesaler initiates the combining of services
• Ace Hardware GO!
• F. Franchise
• Agreement between franchisor and franchisees
• McDonald's GO!

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Conventional Versus Vertical Marketing Systems
Conventional Marketing System
Vertical Marketing System
Manufacturer
Wholesaler
Retailer
Ultimate Consumer
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Internet Marketing


Internet Marketing Resources http//www.stetson.ed
u/rhansen/netmkt.htmlresources

Internet Marketing Articles http//www.stetson.ed
u/rhansen/netmkt.htmlarticles
  Internet Marketing Newsletters http//www.stet
son.edu/rhansen/netmkt.htmlnewsletters
Internet/Web Marketing Books http//www.stetson.e
du/rhansen/netmkt.htmlbooks
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Internet Marketing


Ideas on Success in Internet Marketing http//www.
applied-web-marketing.com//
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Disadvantages of Internet Marketing

• Low Barriers to Entry
• Online setup is relatively inexpensive, thus
  barriers to entry are low
• Competition is high
• Comparison Shopping is Easy
• Some online sites offer "shop bots" that search
  online merchants for the lowest price 
• Margins are tight, therefore difficult for
  merchants to raise prices without losing sales

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Disadvantages of Internet Marketing

• Consumer Confidence
• Confidence takes a long time to build and is
  extremely easy to lose
• Consumers can't touch the product
•  
• Security Concerns
• One of the most common obstacles of e-commerce is
  the overall fear of fraud
• Positive word-of-mouth should help

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Disadvantages of Internet Marketing

• Customer Service Problems
• With virtual stores, customers have nowhere to go
  to either check out the merchandise or
  return/exchange items 
• Many e-trailers focus on giving good customer
  service as one of their competitive advantages
  but this is not easy or inexpensive
•  Shipping
• Shipping times are generally getting shorter as
  e-commerce companies build out better
  distribution systems

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Disadvantages of Internet Marketing

• Site Outages
• Outages are costly and unacceptable to consumers
   
• Cash Burn
• Should be of primary importance to any investors
  in the Internet
• Companies must achieve profitability or fail !!!

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Disadvantages of Internet Marketing

• Dot Com Graveyard
• Furniture.com
• Garden.com
• Pets.com
• Living.com
• There are no links!!

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..BUT

• Yahoo profit jumps on higher revenues
• Reports net of 75 million in fourth quarter
• Updated 619 p.m. ET Jan. 14, 2004
• Internet services company Yahoo Inc. on Wednesday
  posted a quarterly net profit that rose from a
  year ago, fueled by its acquisition of Web search
  advertising provider Overture Services Inc. in
  October.

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and

• Google's Profit Jumps Sevenfold
• Google Inc. said third-quarter profit rose more
  than sevenfold and revenue roughly doubled,
  blowing past investor expectations and sending
  its shares surging more than 12
• Market Dispatches10/18/2007 835 PM ET

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Managing the Channel of Distribution

• Channel Tends to be LONGER
• Low Price
• Durable Product
• Complex Product
• After-sale Service
• Limited Resources
• Many Small Customers
• Many Producers
• Capable Intermediaries

• Channel Tends to be SHORTER
• High Prices
• Perishable Products
• Simple Products
• Substantial Resources
• Few Large Customers
• Few Producers
• Focused Merchandising
• Few Intermediaries

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Market Exposure
What Market Exposure Fits the Marketing Objectives
?
number of outlets
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Extent of Distribution
INTENSIVE
SELECTIVE
EXCLUSIVE
Maximum Exposure at Retail Level Saturate Every
Outlet Chewing Gum
Limited number of Select Outlets Hathaway Shirts
Limited number of Select Outlets Hathaway Shirts
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Channel Independency

• Channel Cooperation
• Objectives and strategies of two channel members
  are harmonious
• Channel Conflict
• Antagonistic relationship from the absence of
  clear channel power or disagreement over purpose

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Channel Independency

• Channel Power
• Ability to influence the behavior of another
  channel member, channel leader or channel captain

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Types of Channel Power

• Coercive Power
• Force compliance by threats of punishment, such
  as loss of business
• Reward Power
• Offer incentives, usually economic, to induce
  compliance

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Types of Channel Power

• Expert Power
• Induce compliance due to superior expertise or
  knowledge
• Referent Power
• Earn admiration and respect, leading to
  compliance
• Legitimate Power
• Exert influence based on legal agreements

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Ethical, Political, and Legal Forces

• Reverse Distribution
• Recycling
• Costs of Distribution Functions
• Eliminating middlemen does not reduce the
  functions to be performed!!!!

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Ethical, Political, and Legal Forces

• Legal Regulation
• Exclusive dealing
• A supplier prohibits intermediaries that handle
  its product from selling competing products
• Exclusive Territories
• Is competition restricted? Justification
  includes investment is so great it justifies
  exclusivity image or quality

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Ethical, Political, and Legal Forces

• Tying Contracts
• Require intermediary to purchase merchandise that
  is supplementary to the desired product

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Distribution Information on the WEB

• Logistic Management Magazine --
• http//www.mondotimes.com/2/topics/5/business/109/
  2939 go!
• A Page of Logistics Related Links
• Provided by Gross Assoc.
• http//grossassociates.com/industry_links.htm go!